Flowserve Corporation Reports Fourth Quarter and Full Year 2017 Results; Issues 2018 Financial Guidance

DALLAS--(BUSINESS WIRE)--Feb. 15, 2018--

Flowserve Corporation (NYSE: FLS), a leading provider of flow control products and services for the global infrastructure markets, today announced its financial results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter 2017 Highlights

• Reported Loss Per Share (LPS) of $0.81 and Adjusted Earnings Per Share (EPS)^[1] of $0.50
  • Reported LPS includes $158 million of discrete, non-cash tax expenses, primarily related to the impact of the U.S. Tax Cuts and Jobs Act of 2017
• Sales were $1.03 billion, down 3.4%, or 7.1% on a constant currency basis and included approximately 2% negative impact related to divested businesses
  • Aftermarket sales were $502 million, up 0.1%, or down 2.8% on a constant currency basis
• Reported gross and operating margins of 29.4% and 8.3%
  • Adjusted gross and operating margins^[2] were 30.5% and 9.8%
• Total bookings were $985 million, up 8.5%, or 4.7% on a constant currency basis, and included approximately 2% negative impact related to divested businesses
  • Aftermarket bookings were $464 million, or 47% of total bookings, up 3.9%, or 0.9% on a constant currency basis

Full Year 2017 Highlights

• Reported EPS of $0.02 and Adjusted EPS^[1] of $1.36
  • Reported EPS includes $158 million of discrete, non-cash tax expenses, primarily related to the impact of the U.S. Tax Cuts and Jobs Act of 2017
• Sales were $3.66 billion, down 8.3%, or 9.1% on a constant currency basis and included approximately 2% negative impact related to divested businesses
  • Aftermarket sales were $1.78 billion, down 0.6%, or 1.2% on a constant currency basis
• Reported gross and operating margins of 29.6% and 9.2%
  • Adjusted gross and operating margins^[2] were 31.3% and 8.6%
• Total bookings were $3.80 billion, up 1.2%, or 0.4% on a constant currency basis, and included approximately 2% negative impact related to divested businesses
  • Aftermarket bookings were $1.83 billion, or 48% of total bookings, up 0.4%, or down 0.2% on a constant currency basis

• Backlog at December 31, 2017 was $2.03 billion, up 6.9% versus 2016 year-end

“Flowserve’s fourth quarter and full year 2017 adjusted results were largely in-line with our expectations. In the quarter, we achieved better than anticipated bookings growth, providing a solid foundation for growth in 2018,” said Scott Rowe, Flowserve’s president and chief executive officer. “Additionally, we are increasingly optimistic that our core energy end markets are positioned to inflect. We believe that the continued stability in oil price levels, global economic growth, completion of U.S. tax reform and an improved regulatory environment, have improved market conditions, which could support our customers increased spending on deferred maintenance and efficiency upgrades, as well as reaching investment decisions for larger projects.”

Lee Eckert, Flowserve’s senior vice president and chief financial officer, added, “Flowserve delivered strong operating cash flow of $239 million in the 2017 fourth quarter. We ended last year with cash and cash equivalents of over $700 million, a $200 million improvement from the 2017 third quarter levels. While we made progress last year, continuing to reduce our working capital will remain a major priority for the business going forward.”

Rowe concluded, “While we expect to benefit from stronger end-markets, we also continue to advance our Flowserve 2.0 strategy to streamline and simplify the business. I am confident Flowserve has tremendous opportunity ahead, and we expect to drive significant long-term value for our customers, employees and shareholders.”

2018 Initial Guidance^[3]

Flowserve is providing Reported and Adjusted EPS guidance for 2018, as well as certain other financial metrics, as shown in the table below.

Flowserve’s 2018 Adjusted EPS target range excludes expected realignment charges of approximately $90 million, as well as the potential impact of below-the-line foreign currency effects and certain other discrete items. Both the Reported and the Adjusted EPS target range includes the expected revenue increase of approximately 3 to 6 percent year-over-year, and is based on current foreign currency rates and commodity prices, 2017 year-end backlog, expected bookings levels and market conditions, minimal impact from adoption of accounting pronouncements, the reset of annual incentive performance goals, a broad-based merit increase, modest above-the-line foreign currency benefits, net interest expense in the range of $58 to $60 million and a tax rate of 27 to 28 percent. The quarterly phasing of expected 2018 earnings is anticipated to reflect traditional seasonality, although more pronounced in its second half weighting.

Fourth Quarter 2017 Results Conference Call

Flowserve will host its conference call with the financial community on Friday, February 16^th at 11:00 AM Eastern. Scott Rowe, president and chief executive officer, as well as other members of the management team will be presenting. The call can be accessed by shareholders and other interested parties at www.flowserve.com under the “Investor Relations” section.

^[1] See Reconciliation of Non-GAAP Measures table for detailed reconciliation of reported results to adjusted measures.

^[2] Adjusted gross and operating margins are calculated by dividing adjusted gross profit and operating income, respectively, by revenues. Adjusted gross profit and adjusted operating income are derived by excluding the adjusted items. See reconciliation of Non-GAAP Measures table for detailed reconciliation.

^[3] Adjusted 2018 EPS will exclude the Company’s realignment expenses, the impact from other specific one-time events and below-the-line foreign currency effects and utilizes year-end 2017 FX rates and approximately 132 million fully diluted shares.

^_ FX headwind is calculated by comparing the difference between the actual average FX rates of 2017 and the year-end 2017 spot rates both as applied to our 2018 expectations, divided by the number of shares expected for 2018.

About Flowserve

Flowserve Corp. is one of the world’s leading providers of fluid motion and control products and services. Operating in more than 50 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. More information about Flowserve can be obtained by visiting the company’s Web site at www.flowserve.com.

Safe Harbor Statement: This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Words or phrases such as, "may," "should," "expects," "could," "intends," "plans," "anticipates," "estimates," "believes," "forecasts," "predicts" or other similar expressions are intended to identify forward-looking statements, which include, without limitation, earnings forecasts, statements relating to our business strategy and statements of expectations, beliefs, future plans and strategies and anticipated developments concerning our industry, business, operations and financial performance and condition.

The forward-looking statements included in this news release are based on our current expectations, projections, estimates and assumptions. These statements are only predictions, not guarantees. Such forward-looking statements are subject to numerous risks and uncertainties that are difficult to predict. These risks and uncertainties may cause actual results to differ materially from what is forecast in such forward-looking statements, and include, without limitation, the following: a portion of our bookings may not lead to completed sales, and our ability to convert bookings into revenues at acceptable profit margins; changes in global economic conditions and the potential for unexpected cancellations or delays of customer orders in our reported backlog; our dependence on our customers’ ability to make required capital investment and maintenance expenditures; risks associated with cost overruns on fixed-fee projects and in taking customer orders for large complex custom engineered products; the substantial dependence of our sales on the success of the oil and gas, chemical, power generation and water management industries; the adverse impact of volatile raw materials prices on our products and operating margins; our ability to execute and realize the expected financial benefits from our strategic manufacturing optimization and realignment initiatives; economic, political and other risks associated with our international operations, including military actions or trade embargoes that could affect customer markets, particularly North African, Russian and Middle Eastern markets and global oil and gas producers, and non-compliance with U.S. export/re-export control, foreign corrupt practice laws, economic sanctions and import laws and regulations; increased aging and slower collection of receivables, particularly in Latin America and other emerging markets; our exposure to fluctuations in foreign currency exchange rates, including in hyperinflationary countries such as Venezuela; our furnishing of products and services to nuclear power plant facilities and other critical processes; potential adverse consequences resulting from litigation to which we are a party, such as litigation involving asbestos-containing material claims; a foreign government investigation regarding our participation in the United Nations Oil-for-Food Program; expectations regarding acquisitions and the integration of acquired businesses; our ability to anticipate and manage cybersecurity risk, including the risk of potential business disruptions or financial losses; our relative geographical profitability and its impact on our utilization of deferred tax assets, including foreign tax credits; the potential adverse impact of an impairment in the carrying value of goodwill or other intangible assets; our dependence upon third-party suppliers whose failure to perform timely could adversely affect our business operations; the highly competitive nature of the markets in which we operate; environmental compliance costs and liabilities; potential work stoppages and other labor matters; our inability to protect our intellectual property in the U.S., as well as in foreign countries; obligations under our defined benefit pension plans; our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud; and other factors described from time to time in our filings with the Securities and Exchange Commission.

All forward-looking statements included in this news release are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statement.

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, management believes that non-GAAP financial measures which exclude certain non-recurring items present additional useful comparisons between current results and results in prior operating periods, providing investors with a clearer view of the underlying trends of the business. Management also uses these non-GAAP financial measures in making financial, operating, planning and compensation decisions and in evaluating the Company's performance. Throughout our materials we refer to non-GAAP measures as “Adjusted.” Non-GAAP financial measures, which may be inconsistent with similarly captioned measures presented by other companies, should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

(1) Earnings per share is computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in weighted average quarterly shares outstanding.

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Source: Flowserve Corporation

Flowserve
Investor Contacts:
Jay Roueche, 972-443-6560
Vice President, Investor Relations & Treasurer
or
Mike Mullin, 972-443-6636
Director, Investor Relations
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